Which of the following qualify as replacement property under the involuntary conversion rules?
I.Smooth Yogurt Company's warehouse for storing its yogurt curds is condemned by the port authority. The warehouse will be replaced with a new office building in a neighboring community.
II.Smooth Yogurt Company's other warehouse, which was fully leased to another company, is destroyed by a tornado. The warehouse will be replaced with a rental office building adjacent to the company's new office building and will be leased to various tenants.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Which of the following qualify as replacement property under the involuntary conversion rules?
I.Smooth Yogurt Company's warehouse for storing its yogurt curds is condemned by the port authority. The warehouse will be replaced with a new office building in a neighboring community.
II.Smooth Yogurt Company's other warehouse, which was fully leased to another company, is destroyed by a tornado. The warehouse will be replaced with a rental office building adjacent to the company's new office building and will be leased to various tenants.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Both of the scenarios described qualify as involuntary conversions and the replacement property (new office building and rental office building) can be considered as like-kind property. As long as the replacement property is acquired within the designated time frame and for an amount equal or greater than the amount received from the condemnation or destruction, it would qualify for tax deferral under the involuntary conversion rules.

Which of the Following Qualify as Replacement Property Under the Involuntary